Resources, Capabilities

1
Resources, Capabilities Competencies

• Session 5

2
Resource based view

• Differential performance of firms in the same
  industry
• Firm profitability driven by structure of assets
  within the firm
• Heterogenous and immobile assets
• Dynamic capabilities view
• Internal view, whereas IO is an external view

3
Competitive Advantage

• Firm profit rate exceeds industry average
  rents, abnormal profits
• Sustainable competitive advantage
• Competitive advantage resource based view-
  exploits differences
• Competitive advantage IO view doing the same
  thing as other firms

4
Value, Price and Costs

• Consumer surplus
• V-P
• Profit margin
• P-C
• Value creation
• Cost reduction
• Blocks of competitive
• Efficiency, Quality, Innovation
• Customer responsiveness

V-P
P-C
C
5
Value Chain

• Primary activities, support activities
• Similar to the assembly line concept
• Sequential relationship, no feedback loop
• Networks elaborated value chains, feedback loop
  structures

6
Competency, Resources, Capabilities

• Competency firms unique strength that allows
  it to create value
• Resources (what you have)
• Tangible, Intangible
• Capabilities (what you do with resources)

7
Creating Corporate Advantage

• Essence of corporate
• advantage the way a
• company creates value
• through configuration
• and coordination of its
• multibusiness activities.

Source Collis Montgomery
8
Resources, Capabilities and Competitive Advantage
Industry Key Success Factors
Competitive Advantage
Strategy
Organizational Capabilities
Resources
Intangible
Human
Tangible
Skills Knowledge Communication
ability Motivation
Technology Reputation Culture
Financial Physical
Source Grant
9
Capabilties
Source Grant
10
Wal-Marts advantage
Resource
Competitive Advantage Industry avg. cost
Wal-Mart cost ( of sales)
Tangible
Store locations
0.3(store rental space)
1.2 (advtg exp) 1.1 (payroll exp) 0.7 (shrinkage
exp
Brand reputation Employee loyalty
Intangible
Inbound logistics
Capabilities
1.2 (distribution exp)
Total advantage 4.5
Source Ghemawat)
11
Rent Earning Potential of Resources/Capabilities
Scarcity
Establish competitive advantage
Relevance
Durability
Transferability
Profit potential of resource/ capability
Sustain competitive advantage
Replicability
Property Rights
Appropriate competitive advantage
Bargaining Power
Embeddedness
Source Grant
12
Property rights

• Norm and Cliff battle
• Who owns the rights to a famous TV character?
• The actor
• The studio

Source LA Times and Cheers web site
13
Why companies fail

• Inertia Resistance to change
• Prior strategic commitments
• Path dependence
• Capabilities grow cumulatively
• Icarus paradox

14
Sustaining competitive advantage

• Building blocks of competitive advantage
• Scheduling change
• Continuous learning
• Tracking environment
• Overcoming inertia
• Best Practices, Benchmarking